23 November 2005

An interesting development in the US courts. Audio MPEG (Sisvel’s US affiliate) sued Creative Labs earlier this year, over the same patents we’ve been threatened with. Last week, the District Court found that Audio MPEG lacked standing by itself to sue, i.e. the patent owners are “essential parties” to the suit. Therefore, unless Philips, France Telecom, IRT, and Telediffusion de France are added to the case as plaintiffs within 15 days (of Nov. 18), the case will be dismissed.The reason for this holding is that the judge examined the agreement between the patent owners and Audio MPEG, and found that the patent owners retained “substantial” interests in the patents. The opinion reveals some interesting facts about the relationship between the patent owners (i.e. Philips) and Audio MPEG/Sisvel. Some highlights:

although Audio MPEG is a subsidiary of Sisvel, the master agreement is between the patent holders and Audio MPEG. Audio MPEG has granted a sublicense to Sisvel for the European patents.

The agreement requires that Audio MPEG “consult” with the patent owners prior to beginning any “legal proceeding.” While this doesn’t say whether Philips can stop any action, it belies Philips’ repeated contentions that it has no influence over Sisvel.

The agreement gives Sisvel almost no discretion over royalty rates, to whom it may license, etc. It appears that Sisvel simply cannot refuse a license to anyone, nor can it make changes to the agreement unless they are “nonsubstantial.” However, the patent owners apparently can “renounce” their claims with respect to certain third parties, in which case Sisvel must reduce the royalty rates by some formula. Presumably all 4 patent owners could renounce, but we don’t know the details.

It will be interesting to see whether the patent owners actually join the lawsuit. While to some degree this is merely a formality, this forces Philips to formally be in a position where they are likely suing customers, if they want to proceed in the United States.On a related note, the case between Audio MPEG and Thomson was dismissed last week, by stipulation of the parties. Thus something has been settled. However, the case was dismissed without prejudice, allowing for a future lawsuit, which leads me to wonder whether there was really a cash settlement. It’s hard to draw any conclusions; Thomson SA, the parent company, was dismissed earlier for lack of personal jurisdiction – there might have been other problems with the case against its US affiliates.

More mp3Apart from companies that decided, for different reasons, to take a license from Sisvel (some of them not because they really believed they needed one, but to avoid further harassment by Sisvel) other big names in the mp3 world have decided to take off the gloves. Apple, Creative Labs, SanDisk, Sony Ericsson, to name a few. Sisvel acts as His Master’s Voice of Philips & Co. They own no patents nor do they have any assets to speak of. Sisvel simply acts as a decoy for the real right owners who, by using Sisvel as their agent, stay out of the loop when confronted with counterclaims from the companies they assert their licensed rights against. Sisvel does so in a unusual manner. Unusual in its aggressiveness and methods. First shoot then talk, we don’t take prisoners.Legal battles are going on, despite licensing successes by Sisvel. In Germany, UK and Netherlands, several court cases are pending as they are in the US. Unlike what Sisvel tries to make us believe in press releases and on their website, things are not looking pretty for them. The first decision by a German Court (in Mannheim) was all but favorable to Sisvel. They requested an injunction based on a complete misrepresentation of the ISO/IEC standard (the industry standard that covers most mp3 players) but the court is not yet convinced they have a case. The judge wants the parties to provide more detailed information to the court on the invalidity arguments that are being brought (by Thomson of France) in a case before the German Bundespatentgericht(the only court in Germany can invalidate a patent in Germany). The fate of the Thomson case remains uncertain as Thomson recently announced to take a license. Gossip goes that that was because management no longer wants the legal hassling on this issue, which takes lot of resources from the company.In the UK CreativeLabs have initiated a court proceeding against Sisvel, basically requesting the court to dismiss the ludicrous reasoning that anyone having a mp3 player or functionality must use the patents of Philips & Co, as they are “essential patents” to the ISO/IEC standard 11172-3 (part 3- audio) of March 1993. Wrong, as is shown in a letter from the ISO/IEC Director of the “Standards Department of ISO Central Secretariat” of August 2001. The ISO repeats its mantra, declarations of patents are not being checked by the ISO nor their applicability to the standard. Any claim to the contrary, like the Sisvel claim in various courts, is therefore ill-founded. To be continued

22 November 2005

You want to tap into the vast market for mp3, right? Intoxicated by the success of Apple's iTunes and the irresistible iPod, your company either produces or sells mp3 decoding audio equipment. Then be aware!

You must have encountered Sisvelby now. Sisvel has offices in Italy as well we in the US, and call themselves "a company working in the field of technological innovations". Well, so much for innovation. The truth is that Sisvel actually has nothing to do with innovation, unless you call the art of patent trolls "innovative". They are simply a licensing vehicle, used by companies like Philips and France Telecom, to enforce patents these companies have on mp2 and mp3 audio technologies. They use unprecedented and aggressive methods of extorting money from users of mp3 players and mp3 enabled mobile phones. They have been able to get big companies on their knees, like Thomson of France (a powerful player themselves in the mp3 world), Samsung, and the like.

Their tactics are aggressive. A popular tool for Sisvel is using so called Border Detention Orders or BDO's against those parties that import mp3 enabled devices into Europe. Customs, now particularly known for their patent expertise, can be simply persuaded to seize any product labeled "mp3". Sisvel, backed by Philips and other mp3 patent holders, base themselves on a made up story that the patents they represent (the Philips & Co patents) are in fact part of the the mp3 audio codecs standard, governed by a 1994 ISO/IEC standard.

At the IFA 2005, held in Berlin, many smaller Chinese manufacturers of audio equipment did not even dare to enter the EU market, scared off by the demands for royalties and upfront payments. The demands are so excessive that many decide not to even try to enter the market. Talking about IP as a means not to innovate but to stifle innovation and market access, something the EU says it promotes. Well take a second look!

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